Enforcing Disclosure Compliance in Mergers and Acquisitions: Evidence from China

forthcoming on European Accounting Review

75 Pages Posted: 4 Apr 2019 Last revised: 16 Oct 2023

See all articles by Junzi Zhang

Junzi Zhang

University of Bristol - Department of Finance and Accounting

Pawel Bilinski

Bayes Business School, City University London

Ivana Raonic

City University London - The Business School

James Ryans

London Business School

Date Written: September 4, 2019

Abstract

This study examines how enforcement of acquisition disclosure regulation affects investors’ assessment of the transactions’ quality at merger and acquisition (M&A) announcements. Using a novel sample of comment letters on acquisition filings by public companies in China, we document that regulatory requests for disclosure enhancement and clarifications are more common on lower quality transactions obfuscated by weaker disclosure as evidenced by (i) a lower likelihood of the deal closing, and if the deal does close, lower post-deal firm profitability; and, (ii) a greater likelihood of subsequent goodwill impairment. Using entropy balancing matching, we document that transactions that receive comment letters associate with significant negative bidder announcement returns suggesting that regulatory actions reveal new information that aids investors to identify lower quality deals. The negative price effect is greater when comment letters have more acquisition-specific comments, compared to letters with more comments on general accounting and governance issues. Our results showcase that enforcing disclosure compliance in M&A filings aids investors in assessing the quality of M&A transactions at the time when the filings are made public.

Keywords: enforcement; comment letters; mergers and acquisitions; disclosure; regulation; transparency; political economy

JEL Classification: D78; D82; G14; G34; G38; K22; K42; M41; M48

Suggested Citation

Zhang, Junzi and Bilinski, Pawel and Raonic, Ivana and Ryans, James, Enforcing Disclosure Compliance in Mergers and Acquisitions: Evidence from China (September 4, 2019). forthcoming on European Accounting Review, Available at SSRN: https://ssrn.com/abstract=3352597 or http://dx.doi.org/10.2139/ssrn.3352597

Junzi Zhang (Contact Author)

University of Bristol - Department of Finance and Accounting ( email )

15-19 Tyndall's park road
Bristol
United Kingdom

Pawel Bilinski

Bayes Business School, City University London ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Ivana Raonic

City University London - The Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

James Ryans

London Business School ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom

HOME PAGE: http://www.london.edu

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